PSA: Why you SHOULDN’T get a 15-year Mortgage

Here’s why I don’t recommend getting a 15 year mortgage vs a 30 year mortgage, and how taking out a longer term loan could leave you with WAY more money…enjoy! Add me on Snapchat/Instagram: GPStephan

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here’s where I’m getting at, summed up as simply put as possible..if you don’t watch anything in the video, at least read this:

First of all, there’s NOTHING stopping you from paying down a 30-year mortgage early if you want to. If you get a 30 year loan, you can pay it off whenever you want. If you decide you want to pay it off in 15 years, just increase your monthly payment and pay it off sooner.

What a 30 year loan gives you that a 15-year loan doesn’t is FLEXIBILITY. It gives you the ability, if you want to, to pay it off over 30 years and invest elsewhere…or you can pay it off in 5 years, it doesn’t matter. The advantage to doing this is that it gives you more safety and leeway with your payments.

Also, home equity isn’t really going to be making you money…as unpopular as that is to say, when you have your money tied up in a property, it’s not money that’s easily accessible to invest elsewhere at a higher return. In order to get that money, you either need to sell the property - or do a cash-out refinance, pulling out your money, but then taking out a brand new loan and starting all of this again.

With a 30 year loan, you’ll have access to your money as you need it because you’re paying LESS money into an illiquid investment like real estate, and like my last example, you’ll have more free cashflow available to you at the end of the month.

And arguably, the difference in loan amounts between 15 years and 30 years is really such a small number after you account for write offs and inflation…that you may as well just take the 30 year for additional flexibility, allowing you to re-invest the money at a higher return.

And let me just say this for all the Dave Ramsey followers who live by his advice of the 15 year mortgage:
The IDEAL scenario here is that if you’re getting a home for yourself to live in, buy something where you could afford the 15-year mortgage, but take a 30 year for additional flexibility. If you’re getting a house where you can ONLY afford a 30 year house payment, I’d argue that you should lower your price range.

For an investment property, always take the 30 year…cash flow is king, not equity, so you could always go with the option that gives you the greatest amount of write offs…which is the 30 year…and the most cash flow…which is also the 30 year.

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[GrahamStephan]

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[emptyshirt]

The best thing about a 30 year loan is that your chances of being dead before you pay it off are much higher.

[WhiteBoardFinance]

I made this exact video about a year ago. 15 year vs 30 year mortgage. The issue is that people aren't disciplined enough to invest the difference!!

[edsmith]

We had a 10 year loan on our first house, paid off in 6. Equity from that first self built house allowed us to self build the current one for cash, so we haven't had a mortgage since 1981. You'd be AMAZED what not paying 39 years of interest to a bank will do for your financial picture !

[shadyhill]

A wise man once said “if you get a loan from a bank you’ll be paying it off for 30 years, if you rob a bank you’ll be out in 10”

[alicedean]

100% agree Graham. You can pay down the principle anytime while still having a lower monthly payment with the 30-year mortgage. Just because one takes out a 30 year mortgage doesn't mean they have to take the full 30 years to pay it down. Agree with you completely.

[Gemineye]

My parents: Debt is bad don't use too much.
Every finance video: Go into massive debt, use it all.

[Jon-to]

Dave Ramsey's advice makes perfect sense if you're not trying to be a real estate investor. His core audience is just regular people wanting to be debt free.

[Augustus_Imperator]

I love this logic. Honestly I was on the 15yr train before watching, probably because I always considered the rest of the money blowed instead of invested, but if you don't blow it, this is truly logically far superior.

[Myrune]

Everyone I know has a 30 year mortgage because that is all they could afford given the homes they chose. My wife and I took a different path. We purchased a house we could easily afford, took a 15 year mortgage and paid it off in 9 years. Many of our friends had expressed dismay at our modest home, until we paid it off and do whatever we want whenever we want. We invest 30% of our income and travel constantly. We will soon ramp up our investment level again. We will actually have more money in retirement than we have now, which is good, we have lots to do.
Your 30 year method could work with highly disciplined people, but I don't know any. Boats and hoes seems to be the way most go.
"Live today like no one else does so you can live tomorrow like no one else can." Hmmm, seems to be good advice.

[hoouwit]

I can't believe how dense some people can be. If you choose the 30yr option you can still pay it off early. The 30yr provides flexibility so that you're not bound to the extra high a payment.

[echtubee]

Dave Ramsey just left the group chat...

[djdimaliuatofficial]

I am also in Real Estate and in Finance, and what he is saying is good as long as you invest your money right and get higher returns from that extra cash

[BradMcCallum]

I know a few people who've taken the debt path, and I know people who paid the mortgage off asap. I totally agree with what you're saying on the technical analysis, I'm 40 now - and its almost all the people who paid their mortgages off who have the options and the feeling of security/wealth - and the peace of mind that comes from not fearing every up/down swing in property values. There is a mental benefit of having low/zero debt that has worth. Your math is right - not disputing that - but in practice I've just seen it work out differently. I think it might have something to do with the $762.00 going to a new F150 payment instead of being invested at 7% in an index fund. Like everything else in life the best answer to the 15 year vs. 30 year question is 'know thyself.' If you will not execute with discipline as you say Graham, then shouldn't someone just default to paying their debt off as quick as possible?

[johnangelo]

Thanks much. Went to school for accounting and I knew all this, tried to explain to my parents and my brother after college many moons ago but never could get them to see the light of day. Oh well.

[NathanielSkinnerMusic]

I'm watching this for the second time, about a year after I watched it the first time. I think over that time, I've slowly been convinced of the superiority of the 30-year mortgage. Thank you for a better than expected (just cause this is YouTube) explanation.

[GuitarsRgood]

Really great explanation! I was set on the 15 year after seeing the interest difference, but I never took into consideration inflation and investments.

[sharmainedeleon]

I wish we had financial literacy course back then when I was in highschool and you could have been the perfect teacher for it.

[justin_time]

Homes are liabilities, rental properties are assets [Rich Dad Poor Dad]. Leveraging debt works brilliantly in business, but terribly in personal finance [because of human emotion]. Can we end the argument over which which strategy is superior, leveraging vs. Dave Ramsey, by separating financial advice into two different sub categories: Personal Finance and Business Finance. They are not equal and should never be treated as such. Even an individual that goes into business alone, such as when buying real estate with rentals in mind, is considered a sole proprietor, but this is not the case when an individual buys a home exclusively to live in, both in the eyes of the legal system and in human psychology.


The last two minutes of this video I think are the most critical and I hope that everyone who disliked and unsubed watched until the end before doing so rather than just clicking one after watching for only three minutes. Thank you for spreading factual and in-depth data, Graham! I appreciate your effort and time spent doing extra work for this video!

[dancq]

I get your point, and it's valid. However, it takes discipline to invest long term and a market that will work in your favor. That's asking a lot.